• Salary expenditure

    This type of R&D expenditure includes expenditure to the extent that it is incurred on eligible R&D activities for those of your employees engaged directly in carrying out an eligible R&D activity. The expenditure may consist of:

    • salaries
    • wages
    • allowances
    • bonuses
    • overtime and penalty rate payments
    • annual, sick and long service leave
    • superannuation fund contributions (which are otherwise deductible under section 290-60External Link of the ITAA 1997)
    • payroll tax and workers compensation insurance premiums.

    The relevant employees may include:

    • researchers undertaking the conception and/or creation of new knowledge and products
    • employees undertaking technical tasks in support of the R&D activities, such as persons keeping records, preparing charts and graphs, operating equipment and writing computer programs
    • supervisors of researchers and technical staff.

    In addition, salary expenditure may also be deductible expenditure incurred by an R&D entity to provide benefits (including fringe benefits) in lieu of paying such employees a cash salary because of an eligible salary sacrifice arrangement.

    Where only part of your expenditure is on the relevant R&D activities, apportionment is necessary. You should keep appropriate records, such as time sheets or job cards, to demonstrate the extent to which an employee's services are on eligible R&D activities. Claims for salary expenditure should be based on actual expenditure and not upon standard salary rates developed for internal costing purposes.

    Salaries (and on costs) of support staff, for instance, general supervisors or administrative staff, who do not actually conduct the R&D activities, should not be included in the R&D tax incentive schedule as salary expenditure. If you determine that this expenditure was incurred on R&D activities, a portion of this expenditure may qualify as other expenditure (see also the section on Other R&D expenditure) depending on the extent to which the expenditure was on the R&D activities conducted.

    Expenditure must be incurred before it may be claimed as a notional R&D deduction.


    If you have incurred salary expenditure to your associate, you are only eligible to claim the amount incurred as a notional R&D deduction at the time that the amount is paid. See R&D expenditure paid to your associate in your claim year for more information.

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    The salaries (and on costs) of your employees whose only connection with R&D activities is clearly indirect - for example, management staff who recruit other company employees for general duties not necessarily related to R&D activities - would not qualify as R&D expenditure.

    Some types of salary expenditure incurred on the construction of depreciating assets, structural improvements or buildings are not eligible to be notionally deducted under the R&D tax incentive due to specific exclusions in section 355-225External Link of the ITAA 1997.

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    Expenditure on salaries, wages, bonuses, overtime and penalty rate payments is salary expenditure to the extent that it is incurred on R&D activities. Expenditure on annual, sick and long service leave or superannuation contributions is deductible in the proportion that reflects the extent to which your employee was engaged in R&D activities in the year.

    Where your employee performs other activities in addition to work on eligible R&D projects, you must apportion that employee's salary amount between the extent to which it was incurred on R&D and non-R&D activities. You must keep appropriate records, such as timesheets, job cards or diaries, so you can demonstrate the amount of time spent on R&D activities.

    Superannuation fund contributions

    Superannuation fund contributions must first meet all legislative requirements to be generally deductible under section 290-60External Link of the ITAA 1997 before they can be notionally deducted as R&D expenditure.


    Deductible contributions to a superannuation fund must be clearly identifiable from staff records and the relevant amounts added to the amount of R&D salary expenditure.

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    Workers' compensation insurance and payroll tax

    Premiums for workers' compensation insurance and payroll tax are salary expenditure to the extent they are considered to be incurred on R&D activities, taking into account the amounts deductible as salary expenditure for salaries and leave, and the total expenditures on these amounts, and other matters that are relevant. Such other matters would include any payroll tax exemptions or concessions available to the company.

    Similarly, in the case of worker's compensation premiums, any increased or decreased rate of premiums applicable to the employees carrying out the company's R&D activities would be taken into account in determining the deductible expenditure. Where payroll tax and workers' compensation premiums paid for R&D staff are known, the amounts should be added to the amount of R&D salary expenditure.

    However, if the amounts cannot be separately identified, you will need to determine a reasonable basis of apportionment when calculating your claim.

      Last modified: 25 Oct 2016QC 25805